After delay, B.C. agrees to back Ottawa's proposal to expand Canada Pension Plan

Andy Blatchford

October 04, 2016 - 11:23 AM

OTTAWA - British Columbia gave its blessing Tuesday to enhancing the Canada Pension Plan, a critical vote of support that opens the door for Ottawa to gradually increase contributions and benefits for future retirees.

After a three-month delay, the B.C. government said it decided to back the proposal after considering feedback from stakeholders.

That was quickly followed by a declaration of victory from Prime Minister Justin Trudeau, who said legislation would be introduced in the House of Commons "shortly" now that all nine of the provinces taking part have agreed to the enhancement.

Initially, every province except Quebec backed a tentative deal to expand CPP and they agreed to finalize it by July 15.

But B.C. was the lone signatory that declined to ratify the agreement-in-principle by the deadline, saying it needed more time to consult businesses and individuals.

"After hearing from thousands of British Columbians and Canadians, I'm confident the changes will have a meaningful impact on retirement income security at an affordable contribution rate," B.C. Finance Minister Michael de Jong said in a statement.

B.C.'s approval was crucial for the CPP's expansion. Reforming the public pension plan has been a central goal for federal Finance Minister Bill Morneau, but he needed the support of at least seven provinces representing no less than two-thirds of Canada's population.

"A year ago, you'll remember that we promised Canadians that we would work to enhance the Canada Pension Plan in collaboration with provinces," Morneau said Tuesday in Ottawa.

"We know it's going to have a huge impact on Canadians and for that we are so pleased to be following through on this commitment."

Morneau was also asked whether it was purely coincidental that B.C.'s support for CPP came about a week after the feds gave conditional approval to a huge liquefied natural gas project in the province.

"It is," he replied.

"Michael de Jong was a big supporter (of CPP expansion) at the table. They went back to British Columbia and realized that they wanted to do consultations. They finished those consultations and are pleased to be supporting this."

The B.C. government has called the controversial Pacific NorthWest LNG project a key economic driver for the province and the country. Opponents, including First Nations, have denounced the project over concerns about its impacts on the environment and fish habitats.

The CPP proposal has faced criticism from political opponents as well as business owners, who will have to boost contributions over seven years starting in 2019 for their workers.

Dan Kelly, president of the Canadian Federation of Independent Business, said Tuesday that employers may be forced to freeze salaries and benefits to manage the extra costs. Some businesses, Kelly warned, have said they may have to eliminate jobs.

"With a flat economy and yesterday’s announcement of five years of increasing carbon taxes/pricing, I'm not sure where our governments think small business owners and employees will find the money to pay for seven years of CPP hikes," Kelly said in a statement, referring to the feds' announcement this week of a national floor price on carbon.

Kelly also said Ottawa never fulfilled its pledge from the March federal budget to consult Canadians before expanding CPP.

Interim Conservative leader Rona Ambrose has described CPP expansion as a "tax hike" that will cost families thousands of dollars.

Earlier this month, the federal government said it expected the changes to slow economic and employment growth slightly in the short term before boosting both in the long run.

The expansion will increase retirement benefits for all working Canadians — not for people who are already retired. The government said it will take roughly 40 years of contributions for a worker to get the most out of the enriched benefit, therefore young people just entering the workforce are expected to receive the biggest returns.

Once the proposed changes are fully implemented in 2025, Canadians would pay between $9 and $42 more into the plan every two weeks.

They will eventually provide future retirees with one-third of their average annual incomes — up from one-quarter. The adjustments will also increase the maximum amount of income subject to CPP by 14 per cent, to $82,700.

The reform will provide a tax deduction, instead of a tax credit, on the increased contributions by employees, which Ottawa expects will reduce government revenues by about $710 million by 2021-22.

The changes would also cost about $260 million a year from the public treasury to help offset the additional financial burden that expansion would eventually place on low-income earners. Ottawa would enhance its refundable working income tax benefit to help compensate eligible low-wage earners for the higher pension contributions.